Retail Space Said to Be Linked to Iran Gets Lease Deal

For five years, the U.S. government has been fighting in court to try to seize a trophy Midtown Manhattan skyscraper it says is secretly owned by the Iranian government.

Now, less than two months after the U.S. won a key ruling in the battle, a court monitor has signed a long-term lease for the retail space in the 36-story tower to a venture including one of the city's top landlords.

650 Fifth Ave., in New York City
Kevin Hagen for The Wall Street Journal

The venture of
SL Green Realty Corp.
and retail investor Jeff Sutton has signed a 49-year lease for the prime space at 650 Fifth Avenue, at 52nd Street, whose tenants include Godiva and Juicy Couture. SL Green won the 30,000 square feet at a time when investors are paying big sums for retail property in prime locations, particularly in New York City.

The deal brings extra cash to a building that has experienced high-vacancy rates of its office space because of the court battle. It gives the building and whoever ultimately owns it millions of dollars per year of additional revenue.

"We think it's at the highest end of retail properties," said
Marc Holliday,
SL Green's chief executive. The lease was signed Thursday, and an announcement is slated for Monday. SL Green declined to comment on financial details of the deal, but a court document last month said the long-term lease would bring the building more than $30,000 a day in additional revenue. That would come out to more than $10 million per year.

Though terms were not provided, retail space in 666 Fifth Avenue, a neighboring building, sold last year for more than $8,000 per square foot.

The building, formerly named the Piaget building after one of its tenants, was constructed in the 1970s by a foundation created by Iran's former shah. That group ultimately became the Alavi Foundation, a nonprofit that owns 60% of the building. Federal prosecutors in 2008 and 2009 alleged in documents filed in U.S. District Court in New York's Southern District that the Alavi Foundation and Assa Corp., which owns the remaining 40%, were both effectively fronts for the Iranian government that had violated sanctions against Iran, including some dating back to the Clinton administration, and that both were engaging in money laundering.

United States District Judge Katherine Forrest ruled in September that both entities committed violations of the International Emergency Economic Powers Act and money-laundering offenses, and thus the U.S. government could proceed with seizing the building. Prosecutors said the seizure would provide a means for compensating victims of Iranian-backed terrorism.

Alavi and Assa have denied wrongdoing, and they are in the process of appealing the action.

In recent days, talks have been heating up between Iran and world powers including the U.S. over a possible agreement in which Iran would curb its nuclear activities in exchange for an easing of Western sanctions. The fight involving the Fifth Avenue building isn't believed to be an issue in those talks.